Internal Service Fund (ISF) Overview
Presented at Weekly Business Session
March 4, 2015
Internal services are those responsibilities a government provides to
support its own internal operations.
Common examples of internal services include information
technology, payroll, motor pool, budgeting, legal, accounting, and
human resources.
Certain management objectives are served by creating a system to
assign prices for the use of these internal services, which are then
assessed to the departments that use the services.
However, there is a cost to develop and maintain internal pricing
systems. Governments must weigh the benefits of an internal
services costing system against the cost and complexity of system
design choices.
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What is Indirect Cost?
◦ Indirect costs are costs used by multiple activities,
and which cannot therefore be assigned to specific
products, services, geographical regions,
customers, or other cost objects.
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Indirect costs are needed to operate the
business as a whole.
Source: http://www.accountingtools.com/questions-and-answers
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Indirect costs incurred in manufacturing
operations are known as manufacturing
overhead, while indirect costs incurred in the
general and administrative area are known as
administrative overhead.
Indirect Overhead is any overhead cost that is
not part of manufacturing overhead.
Source: http://www.accountingtools.com/questions-and-answers
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Thus, indirect overhead is not directly related
to a company's production of goods or
provision of services to customers.
Examples of indirect overhead costs are:
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Accounting, auditing, and legal expenses
Administrative salaries
Information technology
Office expenses, postage and printing
Research and development
Telephone expenses
Rent and Utilities
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Source: http://www.accountingtools.com/questions-and-answers
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Facilities & Administrative (indirect) costs are
those institutional costs, which are not readily
identifiable with a particular project or activity
but nevertheless are necessary for the general
operation of the institution and the conduct of
the activities it performs.
In theory, all such costs might be charged
directly; practical difficulties, however, preclude
such an approach. Therefore, they are usually
grouped into a common pool and distributed to
those institutional activities, which benefit from
them through the expedient of an indirect cost
rate.
Source: http://www.einstein.yu.edu/administration/finance/finance.aspx?id=245
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A Facilities & Administrative (indirect) cost rate is simply a
device for determining fairly and expeditiously, within
boundaries of sound administrative principles, subject to
governmental regulations, that proportion of an
institution's costs, which should be borne by each of its
projects or activities.
The Facilities & Administrative (indirect) cost rate is the
ratio between the total allowable Facilities &
Administrative (indirect) costs of an institution and some
direct cost base, such as the modified total direct costs
(MTDC) base required by the Federal government.
In order to recover its allowable indirect cost pool of
expenses, an institution must allocate and collect its
proportionate share from every project being performed
by the institution.
Source: http://www.einstein.yu.edu/administration/finance/finance.aspx?id=245
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Board of County Commissioners – 18%
Finance – 19%
Human Resources – 12%
Information Technology – 28%
Communications – 8%
County Legal Counsel – 14%
Property Management – 1%
GIS – self-supporting
Law Library – self-supporting
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Step 1 – Calculate ISF amount by taking ISF
Budgets less revenue offsets.
Step 2 – Allocate ISF amount proportionally to
Operating Funds based on Personal Service
and Materials & Service budget (excluding
Capital and pass-through payments).
Step 3 – BCC sets ISF rate as percentage
(currently 10%).
Email to aohare@co.josephine.or.us